LICENSE: THE WAY TO GO? PERSPIRATION - PART TWO
We talked about the entrepreneur approach - now it’s time to talk about the license (see INVENT HELP for the entrepreneur approach). Unfortunately, to get one takes almost as much work as doing it yourself - at least in the primary stage.
You have to perfect your invention, determine its marketability, and take steps to protect it under patent laws. When that is done - then you have to make the choice of doing it yourself or giving a license.
For some that is an easy choice. Most inventors would rather stay in the invent mold - innovating and staying the lab. This typical inventor looks to someone else to develop the invention and sit back and collect royalties - waiting for the quarterly check.
Those more competitive may be prone to take on the whole project. but there are considerations for someone thinking to do this. you have to raise a lot of money, if you are not independently wealthy yourself, and you have to convince a lot of people that your invention is worth it. The right personality helps here. If you want to succeed, you should step back and think of whether or not you have these characteristics:
- Are you a good salesperson? You have to have the ability to attack and convince every person in the food chain - investor, manufacturer, wholesaler, retailer, and eventually the customer with your marketing plan - that your invention is a step above sliced bread.
- Are you a Manager? You will have to wear many hats and manage many types of people. If you can’t delegate authority, find it hard to organize your desk or keep track of complex multi-tasks, you should do yourself a favor and avoid marketing and manufacturing.
- Are you a marketing innovator? If your innovative skills are in the lab and not in business or marketing it would be best if those skills were left to the professionals.
- Are you comfortable taking risks? Some people sky-dive - some don’t. Of course - risk in business has more elements than just jumping out of a plane - sometimes it is more like jumping without a parachute. You must be willing to face the possibility of bankruptcy, creditors, failure, and bounce back for another go at it. If you can’t take risk - it would be better to think about licensing your invention. If you do have these skills - go for it. It is said that about half of the entrepreneur inventors were successful when they developed their product.
WHAT IS A LICENSE?
A license is an agreement (contract) that lets another entity manufacture and sell your invention - for a one-time payment or a continuous set of payments on a monthly, quarterly, or annual basis. As the inventor, you become the “Licensor.” The party getting the license is the “Licensee.” The payments to you over the course of the licensing period are called “Royalties.”
In this type of agreement - the Licensee takes on the headache of manufacturing and marketing the invention - assuming all the business risks, including stopping others from manufacturing or selling the product. You - as inventor/Licensor - sit by your mailbox and wait for the royalty checks.
Sounds easy? Yes and no. You do have to sell the idea. And the odds are not too great. A study was done which showed that about 13 % of inventors who tried to license their invention were successful - 1 in 8.
So what do you do to even the odds?
- Contact the right people to review your masterpiece (remembering what has been said about invention promotion companies on other pages on this site)
- Get the money necessary to protect your idea, and to develop your invention
- Present your invention to a potential manufacturer/marketer in as close to a finished and marketable fashion as possible
One other caveat (yes - another legal term) if you do get the chance to get a license - please have it reviewed by an attorney. There is another way to get your invention to the marketplace - and that is through “assignment.”
Though the terms assignment and license are sometimes used interchangeably, there is a great difference. If you ASSIGN your patent - you say goodbye to your patent. ASSIGN means giving ALL rights to the patent or invention to the person you are dealing with. He becomes the “Assignee.”
With the license - you maintain some control and if the Licensee does not perform under the agreement - you can have a right to reversion - meaning you can get your invention back to present to another licensee.
Also with a license - it can sometimes be non-exclusive - meaning that the licensee can manufacture and sell the invention - but you have the right to give a license to others.
It is important to study the terms of any agreement to ensure that the clauses are truly a license and not an assignment in disguise.
FINANCING FOR THE LICENSE
Usually, financing for the license is less involved than for a fully developed product. What you need money for is the following:
- Money to do the patent search and then the patent application process if the idea is viable
- Money to create a prototype or other suitable presentation to attract potential licensees
- Money to do a market study and market the invention
- Money to solicit and negotiate with potential licensees
How much money? A lot depends on what your invention is about. A simple “new mouse trap” may not entail that much money - keeping in mind that the typical patent process is at least $5,000-10,000. The prototype depends on whether you need tooling, molds, die-cuts, or other such work done. The complexity is the key to cost.
One thing - if you are rich enough to get molds and such made - that is an extra in the negotiations, in that you can sell the molds to the licensee. He doesn’t have that production development cost - saving him money - and you can get some development money back.
Now that you are thoroughly confused - there is a book that is touted to be “the definitive book on product licensing for the independent inventor.” It is in the league of David Pressman’s “Patent It Yourself” found in this site’s Patent Resources.
The book is entitled Royalties In Your Future by Ron Docie
LICENSE: ROYALTIES IN YOUR FUTURE
Here is an excerpt from a review of this book by Ed Zimmer of The Entrepreneur Network:
... And that's what Docie's book does in conveying the "art" of invention marketing. He shows you step by step -- with examples -- how to find and put together invention licensing deals. If you follow the steps that he lays out -- and do them all well -- if there's any chance of your invention licensing, you'll find it and do the deal. And if there's no chance ..., you'll also find that out -- quickly and efficiently.
Now the trick of course is "doing all [the steps] well". That's the "art" of invention marketing -- and that's what Docie conveys so well in this book. If you seriously study his book, you will absolutely know "how" to go about marketing your (or anybody else's) invention.
But there is another caveat here (that word again) - reading the Docie book will tell you HOW to market your invention - it doesn’t say you CAN do it. You still need the entrepreneur talents listed at the beginning of this page to be successful. If you have no business sense, persistence, or chutzpah, you may have a rough road.
The Docie book will give you the knowledge to choose a professional that may be able to get the job done - and make you the one in eight that gets a license.
LICENSE: ROYALTIES IN YOUR FUTURE
I have searched the net - and taking into account all the caveats (yep, again) I have laid down - I have found one site that appears to meet the criteria for an honest operation. the site is a member of the Better Business Bureau - for which I am an arbitrator. I have researched this business’ file and found no complaints since it started.
The owner of the site - Mike Marks - and I have played phone tag and finally met through email, where my questions were answered. the following is part of how his operation is run:
Hi Gary - Invention City receives approximately 1000 submissions a year and actively works on maybe 3. Of those 3, approximately 1/3 goes on to a deal that makes money.
We don't charge fees. Our deals vary. In a typical deal we'll invest 50/50 with the inventor to cover the hard costs of creating a formal prototype, filing patents... and share 50/50 in the proceeds from any deal.
I-City offers links to other companies that do licensing as well. Some are direct submissions to companies I work with.
While the “odds” are slim, at least it is an entry into the licensing world. The questions were answered in the right frame of mind and the site is as honest as I have seen. Worth a shot.